Tuesday, January 23, 2007

FM throws spanner in SEZ works

ARUN S
Posted online: Tuesday, January 23, 2007 at 0000 hours IST

NEW DELHI, JAN 22 : Finance minister P Chidambaram on Monday proposed a
fresh provision in the Special Economic Zones Act that would deny tax
benefits to developers and units in SEZs unless they fulfilled a certain
export obligation.
According to government officials, Chidambaram’s proposal was opposed
not only by commerce and industry minister Kamal Nath, but also by
Planning Commission deputy chairman Montek Singh Ahluwalia and the law
ministry in the meeting of the empowered group of ministers.

Chidambaram proposed that SEZ units should not be eligible for tax sops
if they did not meet an export obligation of 30-50% of total production.
He was also keen that developers be denied direct tax concessions if the
units did not meet the obligation.

The eGoM, chaired by external affairs minister Pranab Mukherjee, failed
to take a decision on 21 crucial issues, including land acquisition, a
rehabilitation policy and misuse of tax incentives since Chidambaram’s
proposal deflected the entire course of the discussion.

Kamal Nath said such a provision would divert huge investments to other
countries as Indian and foreign units in the 23 operational SEZs now
sell up to 70% of their production in the domestic tariff area (DTA).
Even the law ministry said it was not legally tenable to penalise
developers for units in their SEZs not meeting such an obligation.

The commerce ministry was of the view that the current requirement of
posting net foreign exchange earnings was enough to ensure adequate
exports. The Plan panel, too, said if sales to DTA were low, consequent
indirect tax revenue would be minimal.

Pending a final view by the eGoM on other issues and the announcement of
a national rehabilitation policy, all decisions concerning 300 fresh
proposals, 237 proposals that have received the BoA’s formal approval,
and another 164 granted in-principle clearance have been put on hold.
http://www.financialexpress.com/fe_full_story.php?content_id=152532

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